understanding financial products

7/31/2019 Understanding Financial Products

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UnderstandingFinancial Products

Financial Services Marketing (303)

Mrs. Charu Rastogi, Asst. Proff.


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Agenda

What are Financial Products? What are Financial Services? Financial System, its functions Indian Financial System Financial Products

o Banks

o Money market

o Capital market

o Asset / Fund based

o Fee based

How are financial products managed?o Financial Planning Process

o Individual Financial Plan

o Customer needs and product solutions


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Afinancial product is afacility(arrangement or intangible property) throughwhich, or through the acquisition of which, a person

o makes a financial investment

the investor gives money to another person and the person uses the contribution to

generate a financial return, or other benefit, for the investor

the investor has no day-to-day control over the use of the contribution to generatethe return or benefit

Eg: a person paying money to a company for the issue of shares (the company uses

the money to generate dividends for the person and the person, as a shareholder,

does not have control over the day-to-day affairs of the company)

o manages financial risk

manage, avoid or limit the financial consequences to them of particular

circumstances happening

Eg. taking out insurance and hedging a liability by acquiring a futures contract or

entering into a currency swap

o makes non-cash payments

by ways other than making physical delivery of a domestic or foreign currency in

the form of notes / coins

Eg: facility for direct debit of a deposit account, a facility for the use of cheques

Financial Product


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Financial Service

A person provides afinancial service if theyo provide financial product advice

to influence a person in making a decision in relation to a particular financial

product

o deal in a financial product

acquiring/issuing/varying/disposing a financial product

underwriting the securities or interests

o make a market for a financial product

through a facility, at a place or otherwise, the person regularly states the prices at

which they propose to acquire or dispose of financial products on their own behalf

o

provide a custodial or depository service a financial product, or a beneficial interest in a financial product, is held by the

provider in trust for the client


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Financial System

Financial system supplies the necessaryfinancial inputs for the production of goods and

services which in turn promotes the well being

and standard of living of the people of a country Efficient functioning of the financial system

facilitates free flow of funds to more productive

activities and thus promotes investment

It the intermediation between savers andinvestors and promotes faster economic

development


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Functions of Financial System

It serves as a link between savers and investors. It channelizes flow of saving into productive investment. It provides payment mechanism for exchange of goods and

services.

It provides a mechanism for the transfer of resources acrossgeographic boundaries

It provides a mechanism for managing and controlling the riskinvolved in mobilizing savings and allocating credit.

It promotes the process of capital formation by bringingtogether the supply of saving and the demand for investible

funds.


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Financial System in India


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Constituents of Indian Financial System

Financial Institutionso facilitate smooth functioning of the financial system and act as

middlemen or intermediaries between savers and borrowers

Financial Marketso Centers and arrangements which facilitate buying and selling of

financial assets, claims and services

o Unorganized market and Organized market;

Capital Market: Market for financial assets with long or

indefinite maturity period

Industrial Securities Market (Primary and Secondary) Government Securities Market Long term loans market (Term loans, mortgages)

Money Market: Market for short term liquid assets


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Constituents of Indian Financial System

Financial Instruments / Assets / Securitieso represent a claim against the future income and

wealth of others

o Can be classified as per marketability Marketable (shares, bonds, g-sec)

Non-marketable (FDR, PF, Pension funds, NSCs)

oAs per type: Cash, debt, stock assets

oAs per maturity: Short term, long term assets

Financial Serviceso Fund / Asset based

o

Non-fund / Fee based


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Financial products: Banks

CorporateBusiness Loan

Capital raising (Equity, debts)

Mezzanine financing (subordinated

debt or preferred equityinstrument, superior only to equity

shares)

Project finance

Revolving credit (No fixed number of

payments. eg. Credit cards)Risk management (commodities,

interest rate derivatives)

Term loan

Cash management services

Agency services

RetailCurrent account

Savings account

Money market account

Certificate of depositIndividual retirement account

Credit card / debit card

Mortgage

Personal loan (Home, auto,

education)Time deposit

Depository services

Credit Cards


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Financial Products: Money Market

Treasury bill: short term borrowings of the government(14 days, 91 days, 182 days, 364 days)

Commercial bills: banks make advances to customersagainst these

Inter bank call money: source for banks for gettingovernight and short term funds

Commercial paper: short term unsecured instrument

issued by a company via promissory notes with fixedmaturities

Certificate of Deposit: issued by commercial banks ata discount on face value


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Financial Products: Capital Market

Derivatives: forwards, futures, options, swaps Shares, right, bonus, preference Debentures

Bondso Euro convertible bonds

o Deep discount bonds


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Financial Products: Fund based

o Underwriting (shares, debentures, bonds, etc.) of new

issue

o Equipment Leasing

o Hire Purchaseo Bill discounting

o Venture capital

o Housing finance

o Insurance serviceso Factoring, etc


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Financial Products: Fee Based

o Corporate advisory services

o Merchant banking

o Issue management

o Loan syndicationo Credit rating

o Stock Broking

o M & A

o Capital restructuring


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How are financial products managed?


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Financial Planning Process

o Financial planning is the process of managing your funds toachieve your desired goals in the required time frame.

o It involves analyzing your existing financial position,expected future cash flows, inflation and identified financialobjectives to develop a comprehensive financial planning

roadmap.o This is aimed at making available the right amounts of funds

at the right time in the future

o Insurance planning is an integral part of financial planning.An insurance plan takes care of the unforeseeable demandson your finances.

o For instance, an unfortunate illness requiring a surgery canbe covered under a medical insurance plan and you neednot dig into your savings and other investments to pay for it.

o In effect, insurance helps to keep your financial plan ontrack.


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Financial Planning Process

Mrs. Charu Rastogi, Asst. Proff.


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How an Individual Manages FinancialProducts?

An individual investor will undertake comprehensive financial planning:o Determine his current financial situation

income, savings, living expenses, and debts

o Develop financial goals

Retirement, Childs Education, Childs Marriage, Asset purchase, Insurance,

Investment, Tax planning

o Identify alternative courses of action

Consider investment options wrt his risk return profile (conservative, moderate,

aggressive)

Mutual funds, equities, bonds, bank deposits

o Create and implement financial plan

o Sources of information:

Family, spouse

Printed materials, Internet, provider website

Co-workers

Seminars, meetings

Financial Advisor


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Individuals Financial Plan

3. Growth Opportunities

2. Controllable Priorities

1. Non-controllable Events


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Customer needs and product solutions

Customer Need Financial Product Solution

Secure depository for readily accessible cash

managing receipts and payments

Secure depository for cash that pays interest

Current Account

Secure depository for cash that pays interestDeposit Account / Saving

Account

Means of investing lump sum for long term growth

Corporate bonds

Government bonds

Growth funds

Means of investing lump sum to generate income

Income funds

Annuities

Pension schemes

Means of protecting tangible assets from fire, theft,

accidentl damage, etc.General Insurance

Means of protecting human assets from risks associated

with death, illness and medical conditions

Life Assurance

Disability insurance

Critical illness insurance

Permanent Health insurance


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Possible Questions

Discuss various Financial Products and how theseproducts are being managed?

Explain different Financial Products? How are theymanaged?

How Financial Planning of Individual is done throughFinancial Products? How it is managed?

understanding financial products

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